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Going, Going, Gone: ICANN Auction Rules Cause a Stir

The applicant community is working its will on ICANN auction rules – the rules for generic top-level domain (gTLD) auctions published by the Internet Corporation for Assigned Names and Numbers (ICANN). But, as always, ICANN is no pushover.

ICANN auction rules went up for public comment last month after community outcry over the preliminary rules during ICANN’s Public Meeting in Buenos Aires in November. The comment period for the auction rules ends on January 15, with a reply period closing February 4. Auctions are expected to begin in March.

The auctions are designed to resolve conflicts between applicants who have applied for the same gTLD or who applied for gTLDs that were thought to be too similar to coexist. ICANN identified these so-called “contention sets” in February last year and added a handful of additional sets when string similarity objections were upheld by arbitration forums.

How ICANN Auctions Work

ICANN asserts that its auction model is meant to be a “last resort” resolution method. Applicants are encouraged to resolve their differences privately – through an independent settlement, a private auction, or other means.

But when independent resolution is impossible or undesired, the strings in contention go to the highest bidder at an ICANN auction. Losers receive a meager 20 percent refund ($37,000) of their initial $185,000 gTLD application fee. With millions of dollars at stake and hundreds of hours invested in preparing and supporting applications, it comes as no surprise that the auction rules have piqued the ICANN community’s interest.

So what’s all the fuss about? For one, applicants objected to the schedule outlined in the preliminary rules, which would have pushed the last auction rounds to Spring 2016 – an eternity in business terms, given the hefty investments applicants have made so far.

The new proposed rules include some revisions to reflect this criticism by allowing for the resolution of 20 contention sets per month rather than the original 10. An additional restriction that limited applicants with multiple contention sets to participating in only five auctions per month has also been removed. Still, given all the delays that have occurred in the New gTLD Program to date, applicants with late priority draw numbers may be disappointed to learn that their gTLDs will not proceed to auction until January 2015.

Ambiguity in the ICANN Auction Rules

The most serious applicant concern unaddressed by the revised rules may be the ambiguity in how so-called “end-of-round prices” will be determined. These prices set the threshold for how much applicants must pay if they want to remain in subsequent auction rounds. The revised rules give designated provider Power Auctions LLC discretion over the “end-of-round price” and, thereby, influence over the pace of the auction. Most applicants prefer the process used in private auctions where “end-of-round prices” are established by a pre-determined algorithm and communicated to applicants before the auctions are held.

Another issue left unaddressed by the revised rules is how proceeds from the auctions will be used. If the results of recent private gTLD auctions provide any indication, ICANN’s new gTLD auctions will generate tens of millions of dollars or more.

The multi-stakeholder model may well resolve that question too, since Dr. Stephen Crocker, Chair of the ICANN Board, has suggested that the application of any auction proceeds would be subject to community consultation. Suggestions so far include providing refunds to applicants whose applications do not prevail; creating subsidies for a future round of new gTLDs to expand the geographic diversity of the DNS; or donating the funds to one or more charitable organizations.

It remains to be seen how responsive ICANN will be in heeding community concerns over the auction process. Given its limited responses to previous comment periods, and overall pressure to move forward with auctions, it seems unlikely that the comment period will result in a sweeping overhaul of the proposed rules.